The EIP-1559 upgrade could implement token burning, which would increase the value of Ether (ETH). This upgrade also seeks to implement a fixed-rate system to end the volatility in the cost of the network’s transactions.
A report from Grayscale says that an upgrade to the Ethereum blockchain could generate “a positive feedback loop for the price of Ether.” “The mutual fund seeks to outline several relevant considerations to place a clearer value on Ether,” said Grayscale.
Although many people consider Bitcoin as digital gold, what they think of Ether is less clear. For that reason, the document explores three relevant approaches and metrics that relate to each of them. Grayscale looks at Ether as money, Ether as a consumable community, and Ether as a cash-generating asset,” said Grayscale.
Ethereum Upgrade and the Burning of Ether
According to the Ethereum Improvement Proposal (EIP) 1559 upgrade, the Ethereum blockchain would draw on Ether’s transaction costs. Their objective would be to acquire Ether on the open market and then destroy it, thus reducing their overall supply of the cryptocurrency.
Tim Ogilvie, CEO of Staked, compares this to when a company makes a profit and buys back shares. By reducing the supply of shares, the value of the shares increases. Therefore, the burning of billions of US dollars’ worth of Ether can increase the value of the crypto asset.
The executive estimates that Ethereum could burn between one and four percent of the Ether supply per year. They would be able to do so since Ether’s current market capitalization is above USD 200 billion.
Rates Would Be Less Volatile Thanks to EIP-1559
Through EIP-1559, the system for charging fees for the transaction cost on Ethereum would become a fixed-fee one. This would not only help users face changing rates but also make fees less volatile.
That situation would prevent Ethereum miners from maneuvering transaction prices. Otherwise, they would make users pay large amounts that could reach rates of more than USD 20 per transaction.
BASEFEE Automated Price
The network, instead of buyers and sellers, would automatically set a “BASEFEE” price, which would align with the network’s activity. Said “BASEFEE” will increase when the network is busy but will stop working when the network is silent.
To incentivize activities, users can give miners extra money to process transactions, but they do not have to do that. The Ethereum network could use the money generated from BASEFEE to acquire more Ether, which it would subsequently burn.
Implementation of EIP-1559 Has Not Yet Happened
Many users already know this information about the potential of Ethereum Improvement Proposal 1559. However, there is doubt among many of them since Ethereum has not implemented it yet.
Eric Wall, CIO of crypto fund manager Arcane Assets, believes that EIP-1559 still poses cybersecurity risks. When they fix this issue, this implementation could happen by the end of the year during the next Ethereum fork event.
“Some are criticizing this proposal because, although it would benefit Ethereum hodlers, it would not benefit miners. This tool would transfer a portion of their fee income to Ether holders,” according to Ogilvie.
By Alexander Salazar
